The property market changes announced by Chancellor Rishi Sunak in the U.K.’s Budget on Wednesday were less dramatic than murmurings throughout the past year had suggested, as the government focused on a £30 billion (US$38.5 billion) action plan to combat coronavirus.
One measure retained in the government’s tax and finance plans was the long-anticipated stamp duty surcharge for non-resident buyers—at a rate of 2%— set to be enacted in April 2021.
Despite the lower than expected rate—it was expected that a 3% levy would be proposed—the tax could be bad news for a market that has only just begun to show signs of recovery following years of turbulence, the catalyst of which was tax increases back in 2014.
For non-resident buyers with existing homes, the new 2% tax will be on top of the existing 3% surcharge on purchases of second properties, and in that case will bring the highest rate for foreign buyers purchasing the most expensive homes to 17%.
“The timing is dreadful for a tax increase for overseas buyers in the U.K.,” said Hannah Aykroyd, founder and managing director buying agency Aykroyd & Co. “With the U.K. facing the biggest financial threat in more than a decade amid fears the COVID-19 epidemic could cause global recession, the government should be putting in place more measures to attract foreign investment.”
Property prices rose 2.8% across the U.K. in February, compared to the same time last year and pushed the average home price in the nation up to £240,677, according to last week’s house price index from bank and mortgage provider Halifax.
The delayed adoption of the levy will give the market some breathing room to recover from its recent malaise, experts said. It will also usher in a flurry of activity as foreign buyers rush to beat its introduction.
“Now that we know that there will be a year’s delay, I believe it will create greater momentum now,” Camilla Dell, managing partner at buying agency Black Brick said in a statement. The upcoming deadline will give “many buyers ‘clear-air’ to push forward more immediately with purchases that they may have been delaying to decide on.”
But after the short-term surge, the tax will act as a deterrent to overseas investment to the U.K., according to experts.
Last summer, news emerged that Prime Minister Boris Johnson and his party were considering reversing 2014’s increased rates of stamp duty on homes sold for over £1.5 million, as well as abolishing the tax on homes sold for less than £500,000.
But the rumored changes to overall stamp duty were nowhere to be seen on Wednesday.
“Today’s budget is in many ways somewhat of an ‘emergency budget’ to mitigate the economic impact caused by COVID-19. As a result, it is not business as normal,” Nick Leeming, chairman of estate agency Jackson-Stops, said in response to the plans.
The total number of confirmed coronavirus cases globally stood at 121,564 on Wednesday, and 4,373 people have died as a result, according to the Center for Systems Science and Engineering at Johns Hopkins University. In the U.K., there were 382 confirmed cases and six people have died.
Though it’s “disappointing that the government has failed to provide the housing market with a long-anticipated reform to stamp duty for U.K. residents,” Mr. Leeming said. “We don’t expect this to put the brakes on people’s current home buying decisions—particularly now borrowing costs are back down to the lowest level in history following the Bank of England’s cut to interest rates.”
On Wednesday, interest rates were cut to 0.25% from 0.75%, leaving borrowing costs at lowest level in history, according to the BBC.
Other measures in the government’s spending plan include: A £5 billion coronavirus response fund to support the NHS and other public services; the introduction of a plastic packaging tax from April 2022; plans to plant enough trees across the U.K. to cover an area the size of the city of Birmingham; the abolition of a tampon tax on women’s sanitary products; and a £10.9 billion increase in housing investment to support the construction of an average of 300,000 homes a year by the mid-2020s.